8:32 PM, October 25, 2013

Detroit City Council President Saunteel Jenkins, shown in December 2012, said an improved loan in the city's best interest could not be hammered out before Monday's deadline, which was set based on provisions in the state's emergency manager law. / Regina H. Boone/Detroit Free Press

After private negotiations all week with a mystery investment firm, the Detroit City Council decided today not to put forth an alternative deal to a $350-million loan to the city from Barclays that the council rejected earlier this week.

City Council President Saunteel Jenkins said an improved loan in the city’s best interest could not be hammered out before Monday’s deadline, which was set based on provisions in the state’s emergency manager law.

Jenkins said the law was deliberately drafted to minimize the council’s chances of finding a better deal. When the emergency manager proposes loans such as the Barclays proposal, the law gives the council up to 17 days to consider the deal and propose an alternative.

The law “was meant to give the appearance of choice and democracy,” Jenkins said after today’s meeting. “But the reality is, for a deal like this, experts couldn’t craft a deal like this in 17 days. So, certainly people who don’t do this type of thing every day couldn’t do it.”

U.S. Bankruptcy Judge Steven Rhodes, who is handling the city’s bankruptcy filing, ultimately will decide whether to approve the $350-million loan, which emergency manager Kevyn Orr proposed earlier this month.

Barclays, the international bank, has agreed to lend Detroit $350 million to settle a disastrous swaps deal brokered by former Mayor Kwame Kilpatrick involving UBS and Bank of America Merrill Lynch. The interest-rate swaps deal aimed to lock in rates on a $1.44-billion loan taken out in 2005 to shore up the city’s two pension funds.

But rates fell lower than the deal anticipated, leaving Detroit hundreds of millions of dollars more in debt. The city had secured the debt using casino tax revenues. Some say the Kilpatrick-era deal contributed to the city’s decision to file for bankruptcy protection in July.

Jenkins and other council members have characterized terms of the Barclays loan as too risky. She said there were no guarantees on how some of the money would be spent. She questioned whether it would be used to pay for more restructuring consultants.

The council voted to reject the Barclays deal on Monday. An investment firm, which Jenkins would not name, then approached the council to offer an alternative plan. Had the council reached an agreement, a state board would have picked one of the two deals.

“It’s unfortunate that City Counci decided to again say no to an important restructuring component for the city without bothering to propose a viable plan,” Orr spokesman Bill Nowling said.

Nowling said the EM’s office reached out to about 50 financial institutions, of which 20 were interested. Of those, 17 submitted proposals, and Barclays was one of four to send letters of commitment.

Jenkins said the firm, at one point in the negotiations, was asking for art from the Detroit Institute of Arts as collateral. Jenkins said there will not be any further talks about an alternative to the Barclays deal and she expressed optimism that Rhodes would carefully scrutinize the proposal.

A resolution explaining the council’s objections to the deal was passed unanimously today and will be sent to Rhodes.